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September 22, 2011

Nixon's China-Sized Problems

Most informed Missourians are acutely aware of the pending calamity with Jay Nixon’s baby: the St. Louis China Hub. (The tax incentive deal there is “on life support” according to Senate President Pro Tem Rob Mayer.) Gov. Nixon pegged the potential cost of that project in the wide range of “hundreds of millions of dollars.”

But another deal-gone-wrong with China has been mostly overlooked. It involved the (supposed) Chinese-American company Mamtek building a large sweetener factory in the small town of Moberly and it has been an absolute disaster, the kind that may lead to the bankruptcy of the city.

And Jay Nixon was behind this, too… even praising the deal as the headliner of a news conference last summer.

In July 2010, city officials and Mamtek — a Hong Kong-based company that said it spent five years perfecting a unique formula for the artificial sweetener sucralose — unveiled plans for a new plant. The company, with both U.S. and Chinese ownership, would create 120 jobs by Christmas and up to 600 more as assembly lines were added over the next few years.

Sounds like a good deal on the surface.

The catch was that the deal included $39 million in bonds, bonds that were backed by the city of Moberly. Nixon threw $18 million in tax incentives on top of the pile of money.

And the bigger catch was that the company may not have really existed in the first place, as one local reporter found out:

[Reporter Janet] Morales started digging, and she found some holes in Mamtek's story. While the company said it has a plant in Fujian Province, China, she could find no evidence of one. She contacted trade publications and competitors, and found no one knew of Mamtek.

But the local (and state) media chalked her up to some sort of radical… until this month.

[On September 1] UMB Bank put out a statement saying Mamtek had missed the first $2.2 million payment on city-backed bonds. A reserve fund covered the bill, but the city was put on notice: Fix this or be in default on the whole $39 million.

Moberly claims that the city will work through this problem and come out of it without too much damage, but the fact remains that they very well may end up on the hook for $39 million dollars for a factory that will never be, that may never have been.

In a town the size of Moberly, with a population of roughly fourteen thousand, that isn’t exactly an easy number to swallow.

Now Mamtek has fired its few employees, shut down its website, abandoned their Moberly office, and their new president is a bankruptcy lawyer from LA.

In hindsight, it turns out that several other Missouri towns backed away from the deal, weary of the promises of sweet satisfaction, as did the leaders of Bismark, SD:

Russ Staiger, president of the Bismark-Mandan Development Association, wanted Mamtek's sucralose plant in his town, too. At least at first. He had some phone calls with Mamtek's site consultant, and then Cole and company came to town. Staiger "wined and dined" them, he recalled, then got down to business.

"We wanted to see their financials. We wanted to see how much money they were going to put into it. We wanted to see some proof of this magic formula," he said. "They just were never forthcoming. It was like they were almost offended that we wouldn't take them at their word."

Mamtek moved on to Moberly, and Staiger didn't give them much more thought until the other day, when he heard that the deal went south. After his experience, he said, it wasn't a shock.

"My guess is those guys are halfway across the ocean in a rowboat by now," Staiger said.

If Bismark did their due diligence and walked away, why didn’t Missouri? The small town of Moberly may be somewhat excused for the oversight, being blinded by the idea of becoming an internationally competitive city and putting their town on the map… but can the Governor’s office?

And of Nixon’s administration screwed the pooch so poorly with this China deal, can we really trust that he knows what he’s talking about when it comes to the China Hub project in St. Louis?

But I do hear he's got a great deal in the works with some Nigerian Princes who emailed him last week, so I could be wrong.